EUR:Sarkozy, Merkel to meet ahead of summit

Protesters try to avoid the effects of tear gas fired by police forces to disperse the crowds in front of the Greek parliament in central Athens.

Greek riot police officers, covered in red paint thrown by protesters, react during clashes in central Athens on October 19. Greek anger over new austerity measures and layoffs erupted into violence on Wednesday, as demonstrators hurled chunks of marble and gasoline bombs and riot police responded with tear gas and stun grenades that echoed across Athens' main square.

People gather outside the parliament during an anti-austerity rally in Athens' Syntagma (Constitution) square on October 19.

A protester hits a riot police man with a piece of wood as the policeman kicks him during clashes with police forces in central Athens.

Smoke from a fire in front of the finance ministry rises over Athens and its ancient Acropolis (right) during riots after a peaceful march on the first day of a 48-hour strike by workers' unions in Athens.

Riot police clash with demonstrators as protests over Greek austerity measures turn violent in the streets of Athens.

A anti-austerity demonstrator prepares to throw a stone during clashes with police in Athens' Syntagma (Constitution) square.

Riot police stand guard in front of the parliament during riots after a peaceful march on the first day of a 48-hour strike by workers' unions in Athens.

An injured anti-austerity demonstrator is carried to safety during clashes with riot police in Athens' Syntagma (Constitution) square.

A masked youth (left) throws stones at riot policemen during riots in Athens on October 19.

Protester clash with riot police in central Athens on October 19.

A masked youth throws a metal bar at riot policemen in front of the parliament during riots in Athens.

A youth throws a petrol bomb at police during riots with police in Athens' Syntagma (Constitution) square on October 19.

A woman shouts while taking part in an anti-austerity rally in Athens' Syntagma (Constitution) square on October 19.

Youths stand in front of a burning barricade and taunt police during riots in Athens' Syntagma (Constitution) square on October 19.

A protester waves a Greek flag in front of a police cordon following riots in Athens' Syntagma (Constitution) square on October 19.

Riot police in Athens stand in front of a barricade during violent clashes with anti-austerity protesters.

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Youths stand in front of a burning barricade and taunt police during riots in Athens’ Syntagma (Constitution) square on October 19. Greek unions begin a 48-hour general strike on Wednesday, the biggest protest in years, as parliament prepares to vote on sweeping new austerity measures designed to stave off a default that could trigger a crisis in the wider euro zone.
Photo: Reuters

by
Compiled by Ben Woodhead

German chancellor Angela Merkel and French president Nicolas Sarkozy have met in Frankfurt for emergency talks in an attempt to cement a full-scale deal to save the euro zone from meltdown. The meeting came as Greek parliament voted in favour of new austerity measures in the face of violent protests on the streets of Athens.

The French president and German chancellor held talks with Christine Lagarde, IMF managing director; Jean-Claude Trichet, the outgoing European Central Bank president, and other EU leaders.

Moody’s has cut its debt ratings of five Spanish banks and most of the country’s regions.
Photo: Scott Eells

Herman van Rompuy, the European council president, who was also present, said Lagarde and Trichet would attend Sunday’s euro zone summit in Brussels, which is due to adopt a “comprehensive and global" deal to solve the sovereign debt crisis and prevent a renewed recession or even a slump. They were all taking part in a farewell ceremony for Trichet, who leaves this month and who demanded “immediate action" to solve the crisis.

Merkel called for “drastic changes to rules" and said: “If the euro fails, Europe fails, but we will not allow that." She said she was convinced a deal would emerge.

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Greek Prime Minister George Papandreou (right) and Greek Finance Minister Evangelos Venizelos are seen during an austerity vote in the parliament in Athens on October 19.
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But Sarkozy, under pressure to save France’s AAA credit rating and at risk of losing next year’s presidential election to socialist Francois Hollande, was making a last-ditch effort to persuade a hostile Merkel and Trichet to turn the EFSF into a bank.

The euro zone leaders are also seeking agreement on recapitalising Europe’s bigger ("systemic") banks, with well-placed sources indicating that this could require €100 billion rather than the €200 billion mentioned by Lagarde last month.

These two core elements of the promised “grand bargain" are linked to an agreement to make Greece’s debt levels sustainable, with a report from a troika of the European commission, IMF and ECB due to be handed over to euro group finance ministers on Friday. This will inevitably impose bigger “haircuts", perhaps up to 50 per cent, on bondholders than the voluntary losses of 21 per cent agreed in July.

Overnight Van Rompuy indicated that a deal to “stabilise the situation, restore confidence and foster economic growth and employment" remained on the cards despite political differences.

A demonstrator with Occupy Chicago stands outside the city’s Federal Reserve Bank building earlier this month. On October 19, the Fed Beige Book painted a bleak picture of the US economic outlook.
Photo: AFP

GERMANY MOOTS TRILLION EURO BAILOUT

German Finance Minister Wolfgang Schaeuble, meanwhile, has suggested the size of the EU’s bailout fund could be increased to €1 trillion, the Financial Times Deutschland reported.

Europe is looking for ways of boosting the European Financial Stability Facility (EFSF) because experts believe it is too small at €440 billion to prevent the euro zone debt crisis from spreading.

Nevertheless, German politicians are concerned that the contribution of Germany, effectively the European Union’s paymaster, will have to be increased beyond the €211 billion already agreed.

But Schaeuble has assured members of the ruling liberal and conservative coalition that will not be the case, FT Deutschland reported, quoting unnamed sources.

It said the fund could be leveraged to offer partial insurance of 20-30 per cent should member countries not be able to repay their sovereign debt. The partial insurance coverage would enable euro zone countries to borrow more on the capital markets, the newspaper said.

EUROPE BANK WORRIES DEEPEN

The renewed sense of urgency among euro zone leaders to solve the crisis is heightened by evidence that Europe’s banks are finding it harder to borrow money from each other. The ECB reported that banks are now drawing up to €5 billion from an emergency overnight lending facility that carries a punitive interest rate.

Earlier, Jose Manuel Barroso, EC president, held out the prospect of a political accord on the “comprehensive deal" at Sunday’s euro zone summit. “We are at a crucial moment that demands clear and determined responses," Barroso said.

His aides increasingly expect a political deal to be reached this weekend but stress that the technical details of working out an interlocking agreement on making Greek debt sustainable, recapitalising Europe’s banks and boosting the bailout fund, the EFSF, are formidable.

Barroso said boosting the EFSF is necessary so the EU can respond to “situations" in countries not currently covered by bailout programmes. Greece, Ireland and Portugal are covered, but there are growing fears about Spain and Italy.

This weekend’s summits will also be asked to endorse controversial plans to impose budgetary discipline on European countries “spending beyond their means". The sanctions being discussed, diplomats say, include forcing national parliaments to tear up planned budgets and start again and sending in inspectors to crack the whip of fiscal rectitude.

In Spain, Moody’s has cut its debt ratings of five Spanish banks and most of the country’s regions, one day after delivering Madrid a sovereign downgrade, warning it still lacked a “credible" resolution to its economic crisis.

Moody’s also cut the ratings of nine regions, two Basque provinces and five other government-related entities by one or two steps each, and labelled them with a negative outlook. One region, Castile-La Mancha, was hit with a five-notch ratings cut to Baa2.

“Today’s rating action has been prompted by the downgrade of the Kingdom of Spain to A1 from Aa2," Moody’s said in its statement on the banks downgrade. “With the government rating now at A1, Moody’s believes that the benefit of potential support from the government is less pronounced relative to the standalone strength of these banks," Moody’s said.

It said “the high likelihood that support would be forthcoming" nevertheless kept it from further cutting the banks’ ratings.

GREECE APPROVES AUSTERITY BILL

In Athens, Greek lawmakers have granted initial approval to a new austerity bill whose spending cuts and tax hikes have sparked fury on the streets of the nation’s capital.

The bill received a 154-141 vote late on Wednesday. A second vote on the bill’s articles will be held on Thursday in the 300-member parliament. Only after that vote will the bill have passed.

Before the vote, riots broke out in central Athens during a demonstration by about 100,000 people on the first of a two-day general strike to protest the bill.

The measures include new tax hikes, further pension and salary cuts, the suspension on reduced pay of 30,000 public servants and the suspension of collective labour contracts.

Elsewhere, a Greek Development and Competitiveness Minister Michalis Chrysohoidis told the French business daily Les Echos that the country should still be able to hit its target of raising €4 billion from sales of state assets this year.

“Selling state assets as quickly as possible is not an end in itself, even if we think it possible to meet the target of collecting €4 billion in 2011," he said.

Greece’s government pledged earlier this year to privatise and lease the equivalent of €50 billion in state companies and property by 2015 in order to keep receiving bailout loans from the IMF and EU, but little progress has been made.

The Greek government was originally supposed to take in €5 billion from privatisation sales this year.

Police in Athens clashed with protesters outside parliament on Wednesday as more than 70,000 people according to authorities, and 200,000 according to unions, converged on central Syntagma Square.

At least 17 people including three civilians were hurt, among them an off-duty officer struck by unknown assailants who seized his service handgun, a police source said.

The authorities had earlier said four youths were detained at the start of the demonstration, with reports saying firebombs were found in their possession.

Tear gas blanketed central Athens as police fought to keep control, while thousands of peaceful protesters braved the clashes and remained on the square in front of the Greek parliament.

The violence began when some 200 youths hurled firebombs and pieces of masonry hacked off from neighbouring buildings at police from behind a steel barricade erected outside the parliament building.

A battle later broke out outside a row of luxury hotels on the square and a department store was vandalised as small groups of hooded and masked protesters broke away from the main demonstration.

A presidential guard sentry box was set on fire near the tomb of the Unknown Soldier, Greece’s foremost military monument next to parliament, before police moved in to clear the area.

The attackers also pelted police with broken masonry and refuse littering the city’s streets from a two-week strike by municipal garbage collectors, and smashed a police sentry box near the finance ministry.

Striking taxi owners in another part of the protest who set fire to rubbish bins were also sprayed with tear gas and retaliated by throwing bottles at police.

Officers were also attacked in the second city of Thessaloniki where the government’s regional headquarters was assaulted by 100 protesters throwing firebombs.

GREEKS DESPAIR OVER FINANCIAL STRAITS

The bulk of demonstrators in Athens, Thessaloniki, Patras, Heraklion and other cities were peaceful despite boiling anger against the new wave of cuts imposed on a country already slogging through nearly two years of belt-tightening.

“I can either pay my taxes or feed my children, I cannot do both," said Sophia Robola, a 35-year-old woman employed at a store shutter company.

A hundred of her colleagues were recently fired and she has not been paid in four months, she told AFP.

State statistics this week showed unemployment climbing to 16.5 per cent in Greece during a deepening recession. Unions say the real figure is much higher, and will hit 26 per cent next year.

The new austerity bill introduces collective wage amendments, major tax break cuts, a new civil service salary system and temporary layoffs for thousands of public sector staff.

Deputies “should think twice and three times against what they are about to do to a people living through social barbarism," warned Yiannis Panagopoulos, head of Greece’s main union GSEE that represents the private sector.

More protests are scheduled for Thursday, when leftist and Communist unions plan to encircle parliament.

“Today and tomorrow is the greatest general strike, the greatest mobilisation by the Greek people against the unfair, anti-social and ineffective measures brought by the government and its creditors," Panagopoulos said.

The government has repeatedly warned that failure to pass the legislation on Thursday ahead of an EU crisis summit on Sunday would prompt Greece’s peers to block the release of loans and cause a payments freeze.

Finance Minister Evangelos Venizelos told parliament on Wednesday that Greece faced a “battle of battles" in Brussels and would be unable to finalise its budget without Thursday’s new measures.

The government is expected to weather the vote, but a number of ruling party deputies have threatened to oppose an amendment to collective wage agreements.

Chief among them is former labour minister Louka Katseli, who faces dismissal from the ruling party group, a move that would lower the government’s dwindling strength in the 300-seat chamber to 153 deputies.

“Overall economic activity continued to expand in September, although many districts described the pace of growth as ‘modest’ or ‘slight’ and contacts generally noted weaker or less certain outlooks for business conditions," the findings compiled by the regional Fed Bank of Chicago said.

US stocks fell after the Fed’s Beige Book was released, while Treasury debt prices rose on its glum economic outlook.

The survey was based on information collected on or before October 7 and covers coast-to-coast conditions in all 12 regional Fed districts. It is based on the banks’ contacts with businesses and other groups in their regions.

The Beige Book findings will be used by Fed policymakers when they meet on November 1-2 to mull strategy though they are not expected to announce any further easing after that meeting.

Called the Beige Book because of its cover’s colour, the Fed survey found that consumer spending was up slightly in most districts, led by auto sales and tourism. There was also some increase in business spending, notably for construction and mining equipment and for new-car inventories.

Although a few districts saw some pickup in construction, “overall conditions for both residential and commercial real estate remained weak," the survey said. Loan demand was generally weaker except for mortgage refinancing.

Businesses were also cautious in the face of a more uncertain outlook, which the survey said was weighing on spending plans.

“Philadelphia, Richmond and Chicago indicated that many retailers were reluctant to build inventories ahead of the holiday season, pointing to recent declines in consumer confidence," the survey said.